This document discusses mergers, affiliations, and collaborations in the not-for-profit sector. It notes that larger not-for-profit organizations have an advantage in tough economic times and can make a case to partner with smaller organizations. Some benefits of partnerships include maintaining financial viability, adding services, enhancing reputation, and positioning for long-term success. Key considerations when exploring partnerships include aligning missions, assessing synergies, stakeholder feedback, and financial projections. Communicating openly with stakeholders and having realistic expectations about benefits are also important factors for a successful collaboration.

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Positioning for the future
In the for-profit sector, many organizations will conduct scans
of their markets and competitive space to identify companies
with high potential to add strategic value to their portfolios and
performance. This approach could gain equally strong footing
within the not-for-profit sector.
In an era when top-line pressure and escalating costs are
creating a challenging operating environment for entities of
all sizes, larger players generally have greater scale and ability
to successfully navigate such conditions. Operating from a
position of relative strength and stability, larger organizations
can typically make a compelling case to their smaller, more
resource-constrained peers that a combined entity will better
position both organizations for the highest probability of
success and maximal societal outcomes. Some recent examples
of such partnerships include:
• The merger of Florida Blood Services, Florida’s Blood Centers
Inc. and Community Blood Centers of Florida (2012)
• The merger of Jewish Guild Healthcare and Lighthouse
International (2013)
• The merger of Combined Jewish Philanthropies and Jewish
Federation of the North Shore (2013)
Katrina Gomez, Senior Consultant, Not-for-Profit and Higher Education Practices,
Business Advisory Services
Joseph Mulligan, Manager, Not-for-Profit and Higher Education Practices,
Business Advisory Services
Mergers, affiliations and collaborations in the
not-for-profit sector
Leaders of not-for-profit organizations and their boards are
growing increasingly comfortable with furthering mission
objectives by partnering with others. Whether these partners
are for-profit companies, donors, governmental agencies or
fellow nonprofits, few will challenge the popular sentiment that
“together, we can do more.” While organizational objectives
can be achieved by establishing one-off partnerships and
informal collaborations, some not-for-profits have elected
to expand impact by formalizing relationships via an M&A
strategy. Successful organizations looking to do more, as
well as struggling organizations aspiring to financial stability,
have explored M&A to maintain financial viability, add depth
and breadth to offerings, enhance reputation and brand, and
reposition themselves for long-term success.
Besides analyzing the possible benefits associated with joining
forces, preparing for such a major endeavor — evaluating the
alignment of objectives, communicating with stakeholders and
prudently performing due diligence — has proven critical in
attaining eventual success.
Evaluating an M&A strategy to
expand impact and enhance outcomes

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The State of the Not-for-Profit Sector in 2015
Key considerations in exploring compatibility
No matter why an organization is interested in exploring a
partnership with another entity, it is important to consider
the significant level of effort required to implement such a
collaboration. These initiatives demand a tremendous amount
of time, energy and commitment. Inherent activities include
exploring the alignment of mission objectives, outlining the
principal objectives of the partnership, assessing anticipated
synergies, considering constituent feedback and receptivity,
developing financial projections, drafting legal documents,
and receiving the requisite approval, if required, from various
accrediting or regulatory bodies.
1. Discuss what’s best for the mission.
What is distinct about collaborations in the not-for-
profit sector is the focus on maximizing the attainment of
mission objectives. As compared to M&A activity in the
for-profit space — where the principal focus is typically
on maximizing stakeholder value — not-for-profit boards
and management must consider how to position their
organization for mission, versus strictly financial, success in
the future.
While preserving tradition is often a key priority for any
board or organization, it is important that a well-intentioned
appreciation for the past does not impair leadership’s ability
to look to the future.
Leaders who have implemented successful collaborations
have paid careful attention to the sensitivities inherent in
combining organizations, and have found ways to establish
agreement on new or revised organizational objectives. It
is essential to perform a very thorough analysis of potential
impacts to mission, stakeholders and finances, and to clearly
articulate the vital importance and key advantages of a new
direction going forward.
Mutual gain from collaboration
It is important to recognize that exploring alternate operating
models should not be viewed as excessively imperial (for those
operating from a position of strength) nor a sign of defeat
(for those struggling), but rather as a proactive and strategic
assessment intended to help an organization better fulfill its
mission. Organizations are typically drawn to an affiliation or
partnership because of one or more anticipated benefits:
• Improved ability and capacity to serve existing constituents
• Opportunities to expand delivery of existing programs
and/or services to new geographies
• Ability to offer new programs or services
• Reduced costs and efficiencies across administrative functions
• Access to financial support and resources to improve
financial position (debt coverage, financial ratings or ratios,
etc.), enhance facilities, upgrade technology infrastructure
and systems, and fortify market outreach
Large organizations tend to be driven to explore such
collaborations for a variety of reasons. Attempting organic
program development is usually a riskier, slower, more costly
and time-consuming growth strategy. Integrating operations
with an established organization with a strong track record
enables the larger player to diversify its operations, acquire
strategic assets, and expand its reach in a fairly turnkey manner.
As opposed to building from the ground up, collaborations
enable organizations to readily acquire the expertise,
infrastructure and credibility of a fully functioning program.

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2. Communicate with stakeholders: Listen and inform.
When exploring such ventures, it is critically important
to solicit input from a variety of stakeholders. These
individuals could vary from organization to organization,
and typically include those who consume your programs/
services, funders, employees, donors, government
leaders, and the local community. Identifying the various
constituent groups that may be affected by or have opinions
about an endeavor is an important first step to effectively
informing and engaging the community.
Any time a collaboration, affiliation or merger is announced
— even at the earliest stages of exploration — constituents
will have opinions and concerns about the likelihood
of success, anticipated benefits, risks, organizational
motives and potential drawbacks. Open and transparent
communication is critical while leading an organization
through a period of transition. There are numerous
examples of merger attempts that stalled due to stakeholder
pushback; understanding constituent views and navigating
this process with thoughtfulness and sensitivity are key to
developing and executing an appropriate strategy.
3. Be realistic in estimating anticipated benefits.
In exploring a potential collaboration, it is easy (and natural)
for those individuals most in favor of the affiliation to think
about the many benefits that could result. As in the for-
profit sector, nonprofit collaborations typically do not yield
the full range or extent of benefits originally anticipated and
outlined in the due diligence process. Those who are eager
or enthusiastic about the prospects of such relationships are
quick to evaluate possible outcomes and performance with
an overly rosy view. Financial and nonfinancial benefits
and costs should be evaluated with a critical eye and from
an expected-value standpoint, with appropriate sensitivity
analyses performed to foster an understanding of risks in
potential outcomes. Cost savings, synergies and efficiencies
frequently take much longer to materialize than expected.
Although many believe that M&A strategies are employed
exclusively by profit-seeking, shareholder value-oriented for-
profit companies, such partnerships and collaborations offer
tremendous potential within the not-for-profit sector. M&A
can help nonprofits further the pursuit of mission objectives,
expand reach, achieve scale, generate efficiencies and enhance
social impact. With varying objectives for pursuing these
endeavors and many lessons learned over the years, boards
and organizational leaders should remain open-minded about
the prospect of collaborations as a means to better position
their organizations for the future in order to achieve ongoing
success. Finding the right partner, engaging constituents in the
process and performing well-grounded due diligence are key to
a smooth and effective transition.